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UTK

May 18, 2005

UTK reports 1Q2005 RAS results: revenue up 13.1% to RUR 4.3 bln

Krasnodar, May 18, 2005: Southern Telecommunications Company («UTK») (RTS: KUBN, KUBNP; MICEX: UTEL,UTELP; ADR OTC: STJSY, KUE FRA), the principal fixed-line telecommunications provider for Russia’s Southern Federal District, today reported its 1Q05 financial results in accordance with Russian accounting standards (RAS).

  • 1Q05 revenue rose 13.1% over 1Q04 to RUR 4,290.4 mln (USD 154.1 mln)1.
  • Sales from value added services2 increased 76.5% to RUR 306.4 mln and now account for 7.2% of total telecom revenues compared to 4.7% in 1Q2004.
  • EBITDA3 for 1Q 2005 increased 37.9% year on year to RUR 1,264.1 mln (USD 45.4 mln).
  • Subscriber lines in use increased in 1Q2005 adding 20.5 thousand new subscribers. 

In 1Q 2005 UTK generated a total revenue of RUR 4,290.4 mln, a 13.1% increase over 1Q 2004. Revenues from telecom services grew 14.2% to RUR 4, 232.7 mln. Revenue structure showed a stable trend in revenue share growths from local telephony and value-added services. Based on 1Q05 results long-distance and local telephony accounted for 37.5% and 41.4% of the Company’s tariff revenues, respectively.

The growth of the Company’s revenues from telecommunication services was due to a major increase in UTK’s subscriber base and network development as well as the increase in local tariffs (from October 01, 2004).

Revenues from local telephony servicesgrew by 27.0% over 1Q 2004 to RUR 1,754.4 mln. In 1Q 2005 20.5 thousand new telephone sets were added, including 6 ths – to urban telephone network (UTN). As at April 1, 2005 UTK operated 3,948.7 thousand basic telephone sets (lines in use), including 2,931.8 thousand sets in urban telephone networks and 1,016.9 thousand sets in rural telephone networks.

In the reporting period revenues from long-distance telephony services decreased by 0.7 % to RUR 1588.3 million. Volume of outgoing long-distance traffic in 1Q 2005 was 470.8 million minutes (-2 %), including 443.5 million minutes of domestic long-distance (DLD) traffic (-2%) and 27.3 million minutes of international long-distance  (ILD) traffic (-2,1 %).

Revenues from value added services (VAS) in 1Q2005 increased 76.5% to RUR 306.4 mln and accounted for 7.2% of total telecom revenues compared to 4.7% in 1Q2004. Revenues from Internet services grew by 77%, from VPN (virtual private networks) services by 41.9%, from IP telepnony services - by 3.6 times. Internet services sales were supported by strong usage growth: Internet traffic for the reporting period doubled to 125 Tb, connection time via switched access to the Internet was up 56.7% over 1Q 2004 to 8.7 mln hours.

Revenues from interconnection and traffic transit services (excl.VAS) was up 15.9% including 9.1% -  revenues from Rostelecom). Other telecom services experienced a 21.3% decrease in revenues as a result of the phasing out of uneconomic activities.

 

REVENUES:

RUR mln

1Q 2005

1Q 2004

Change

Revenue structure

RUR mln

Growth rate %

1Q 2005, %

1Q.2004, %

1. Revenues from usual activities:

 

 

 

 

 

 

Revenues from sales

4 290.4

3 793.1

497.3

13.1%

100.0

100.0

Revenues from telecom services, including:

4 232.7

3 707.4

525.3

14.2%

98.7

97.7

Local telephony, including.

1 754.4

1 381.5

372.9

27.0%

41.4

37.3

Urban telephone network UTN

1 368.5

1 094.6

273.9

25.0%

32.3

29.5

Rural telephone network RTN

385.9

286.9

99.0

34.5%

9.1

7.7

Long-distance services, including:

1 588.3

1 600.1

-11.8

-0.7%

37.5

43.2

DLD services

1 317.3

1 337.2

-19.9

-1.5%

31.1

36.1

ILD services

271.0

262.9

8.1

3.1%

6.4

7.1

Value-added services, including:

306.4

173.6

132.8

76.5%

7.2

4.7

Internet

202.8

114.6

88.2

77.0%

4.8

3.1

IP-telephony

25.9

5.7

20.2

354.4%

0.6

0.2

VPN

48.4

34.1

14.3

41.9%

1.1

0.9

Interconnection and traffic transit services, including:

464.2

400.5

63.7

15.9%

11.0

10.8

Revenues from Rostelecom

163.2

149.6

13.6

9.1%

3.9

4.0

Other telecom services

119.4

151.7

-32.3

-21.3%

2.8

4.1

Revenues from telecom services by customer segment:

 

 

 

 

 

 

households

2 526.4

2 206.4

320.0

14.5%

59.7

59.5

Business sector including

1 706.3

1 501.0

205.3

13.7%

40.3

40.5

Commercial organizations

856.3

775.4

80.9

10.4%

20.2

20.9

Budget-funded organizations

342.1

305.0

37.1

12.2%

8.1

8.2

Telecom operators

507.9

420.6

87.3

20.8%

12.0

11.3

2. Operating income

25.5

25.7

-0.2

-0.8%

?

?

3. Non-operating income

90.8

38.6

52.2

135.2%

?

?

Foreign exchange gain

6.4

18.2

-11.8

-64.8%

?

?

4. Extraordinary  revenues

0.37

0.003

0.367

by 122.3 times

?

?

1Q 2005 operating expenses increased by 9.6% to RUR 3,246.7 mln. Their structure did not change. Major costs were traditionally expenses on personnel (30.2%), depreciation charges (17.3%), payments to  Rostelecom (15.3%) and material expenses (7.6%). The main contributors to the growth in operating costs were  the increase in depreciation charges due to active investment policy in 2004, increase in the utility tariffs and prices of component parts for repairs.

 The growth of depreciation charges (by 56.8% to RUR 561.3 mln) was attributable to a major increase in fixed assets in operation in 4Q 2004 as a result of the rapid expansion of UTK’s subscriber base, the process of network digitization, construction of high-speed Internet access nodes.

 The increase of wages and salary expenses (by 4.6% to RUR 978.9 mln) was due to average salary growth (by 23.7% in 2004). At the same time due to UTK`s network digitization and optimization of the organizational structure, average headcount decreased by 2.5% over 1Q 2004 to 38.8 thousand people.

The growth of expenses on services of outsider organizations (by 11.6 % to RUR 266.6 million) and other costs (by 4.1 % to RUR 257.8 million) was due to the increase in rent charges, maintenance and repair of the Company’s buildings and facilities as well as growth of expenditures for protection and insurance of the Company’s property, personnel training.

The increase in interest expenses (by 1.8 times to RUR 621.2 million) was due to attraction of external funding for realization of the Company’s active investment program in 2003-2004.

 

OPERATING EXPENSES:

RUR mln

1Q 2005

1Q 2004

Change

Costs structure

RUR mln

%

1Q.2005, %

1Q.2004, %

1. Operating Expenses:

3 246.7

2 962.7

283.8

9.6

100

100

Salaries and wages 

978.9

935.5

43.4

4.6

30.2

31.6

Social insurance

244

317.9

-73.9

-23.3

7.5

10.7

Depreciation and amortization

561.2

357.8

203.4

56.8

17.3

12.1

Material expenses

247.1

226.6

20.5

9

7.6

7.6

Electricity & energy costs

77.6

69.1

8.5

12.3

2.4

2.3

Payments to operators

608.8

564.2

44.6

7.9

18.8

19.0

 Including to OJSC “Rostelecom”

496.1

480.4

15.7

3.3

15.3

16.2

Taxes

4.7

5.1

-0.4

-6.9

0.1

0.2

Services of outsider organizations

266.6

238.9

27.7

11.6

8.2

8.1

Other costs

257.8

247.8

10

4.1

7.9

8.4

2.  Other operating expenses, including

1 013.1

605.1

408

67.4

100

100

Interest expense

621.2

353.1

268.1

75.9

61.3

58.4

Bad debts expenses

167.3

82.8

84.5

?2?.

16.5

13.7

Tax payments

163.7

113.5

50.2

44.2

16.2

18.8

3. Non-sales expenses

65.3

84.2

-18.9

77.6

?

?

4. Extraordinary expenses

7.5

1.3

6.2

by 5.8 times

?

?

Figures for the first quarter of 2004 were changed in 1Q05 financial statements in comparison with 1Q 2004 financial reports due to new accounting methodology for expenses introduced in 2005. Accounting principles for expenses on land rent were also changed (in 2004 the land rent were included in taxes, since 2005 it is included in expenses associated with the lease of property). Accounting for expenses reflected in the line «services of outsider organizations» changed regarding after-sale service. As a result of the above mentioned changes the line "other costs" was also corrected.

EBITDA for 1Q2005 increased 37.9% year on year to RUR 1,264.1 mln. Operating income grew 25.7% to RUR 1,043.7 mln. Operating margin was up 2.4 percentage points reaching 24.3% in the reporting quarter. The increase in operating margin was related to a positive trend in revenue growths compared to the operating costs.  Value indicator per every 100 rubles of gross revenue decreased by 2.6% to 76 rubles.

The Company’s policy aimed at business efficiency growth allowed to improve the following business efficiency indicators: total revenue per one average line grew 3.4 % to 1083.5 rubles, total revenue per 1 employee increased 16 % (to 110.7 thousand rubles), number of lines per 1 employee was up 12.1% (to 102.1 lines).

1Q 2005 UTK`s capital expenditures decreased by 2.9 times to RUR 693 mln compared to RUR 2,011.3 mln in 1Q2004. 46.3% of 1Q05 capex were financed from the Company’s own funds.  Fixed assets put into service stood at RUR 684.2 mln (down 41.3% compared to 1Q04). 

 

KEY FINANCIAL HIGHLIGHTS:

Description

Measure unit

1Q 2005

1Q 2004

Change y-o-y

In measure units

%

Revenues

RUR mln

4 290.4

3 793.1

497.3

13.1%

Operating costs

RUR mln

3 246.7

2 962.7

284

9.6%

Operating profit

RUR mln

1 043.7

830.4

213.3

25.7%

Operating margin, %

%

24.3

21.9

2.4

11.0%

EBITDA

RUR mln

1 264.1

916.4

347.7

37.9%

Profit before tax (PBT)

RUR mln

81.6

205.4

-123.8

-60.3%

Profit before tax margin

%

2.5

6.9

-4.4

-63.8%

Net profit

RUR mln

-10.7*

148

-158.7

?

Business efficiency indicators:

 

 

 

 

 

DLD/ILD traffic per line

Minutes per month

39.6

44.2

-4.6

-10.4%

revenue per line

RUR ths

1.08

1.05

0.03

2.9%

revenue per employee**

RUR ths

110.7

95.4

15.3

16.0%

Lines per employee*

lines

102.1

91.1

11

12.1%

* The level of Net profit was planned at the level  RUR «-418.9» mln.  ** employees on payroll

During 1Q 2005 33.8 ths telephone lines were put into operation in UTK local networks, 15 ths of them being for replacement of analog equipment. UTK`s total installed capacity as of April 1, 2005 stood at 4,137.3 ths lines, including 3,893.4 ths lines in urban TN.

Digitization level of UTK local network rose by 10.3 percentage points reaching 59.4%, including 64.7% in urban telephone network and 42.6% in rural telephone network. Digitization level of the Company’s intrazonal network was 88.1% as of 01.04.2005, being the highest among Russian telecoms.

 

OPERATIONAL HIGHLIGHTS:

Description

Measure units

1Q 2005

1Q 2004

Change YoY

In measure units

%

Head count

Ths people

38.8

39.8

-1

-2.5

Sales results:

 

 

 

 

 

Long-distance traffic including

Mln minutes

470.8

480.4

-9.6

-2.0

DLD traffic

Mln minutes

443.5

452.5

-9

-2.0

ILD traffic

Mln minutes

27.3

27.9

-0.6

-2.2

IP-telephony traffic

Mln minutes

17.4 

3.7 

13.7

370.3

Internet traffic, dial-up

Mln hours

8.7

5.6

3.1

55.4

Internet traffic, xDSL

Tb

124.8

62.3

62.5

100.3

Increase in number of basic telephone sets in urban and rural telephone networks including

Ths sets

20.5

54.8

-34.3

-62.6

Urban TN

Ths sets

6

37.6

-31.6

-84.0

Total number of basic telephone sets in urban and rural telephone networks

Ths sets

3 948.7

3 622.1

326.6

9.0

Telephone density in urban and rural telephone networks

sets/100 inhabitants

21.1

19.3

1.8

9.3

Investment program:

 

 

 

 

 

Capex

RUR mln

693

2 011.3

-1 318.3

-65.5

Fixed assets put in operation

RUR mln

684.2

1 165.7

-481.5

-41.3

Network development:

 

 

 

 

 

Installed capacity growth including

ths  ??

31.8

87.6

-55.8

-63.7

replacement

ths  ??

15.0

30.7

-15.7

-51.1

In urban TN

ths ??

23.5

53.1

-29.6

-55.7

Total installed capacity of urban and rural telephone networks

ths ??

4 137.3

3 893.4

243.9

6.3

Level of equipped capacity of urban and rural TNs

%

96.1

94

2.1

?

Local network digitization (urban and rural telephone networks)

%

59.4

49.1

10.3

?

Including  urban TN

%

64.7

57.1

7.6

?

Intrazonal network digitization

%

88.1

81.4

6.7

?

Increase in intrazonal communication lines

km

0

12.7

?

?

Including fiber-optic lines

km

186.6

94.7

92

97.0

Full UTK`s financial statements for the 1st quarter of 2005 can be accessed on the website.

 

 

 

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